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2017 (5) TMI 212 - HC - Income TaxDeemed dividend addition - Held that - ITAT was justified in setting aside the addition under Section 2(22)(e) made by the AO on account of payments by Raj Homes Pvt. Ltd to Shri Arun Sahlot and his proprietary concerns Arun Associates and Raj Industries, with the direction to examine such aspects as commercial exigency of the loan and terms of loan even though these aspects are not relevant u/s 2(22)(e). Apart from this, the tribunal has only made remand to the Assessing Officer. It is well settled principle of law that if remand order has been passed, then there is no substantial question of law involved for determination because all the questions are open before the authority after remand. Validity of assessment u/s 153A - Held that - Section 153 A of the Income Tax Act prescribes that the Assessing officer has authority to re-assess the tax liability of a person on the basis of material received in search operation. Clearly, this section stipulates that it is the duty of the Assessing Officer to verify the information received from the sources, if the information and the facts are not correct in accordance with law. We answer the second substantial question of law accordingly that the ITAT has not committed any error of law in remanding the matter to the Assessing Officer. We do not find any merit in this appeal, it is hereby dismissed
Issues Involved:
1. Justification of ITAT in setting aside the addition under Section 2(22)(e) of the Income Tax Act. 2. Justification of ITAT in setting aside the additions on account of deemed dividend under Section 153A of the Income Tax Act. Detailed Analysis: Issue 1: Justification of ITAT in Setting Aside the Addition under Section 2(22)(e) The Revenue challenged the ITAT's decision to set aside the addition made by the Assessing Officer (AO) under Section 2(22)(e) of the Income Tax Act, which pertains to deemed dividends. The AO had treated loans given by Raj Homes Pvt. Ltd. (RHPL) to the assessee as deemed dividends, as the assessee held more than 10% shareholding in RHPL and other associated companies. The CIT(A) affirmed this addition. The ITAT, however, found that the loans were advanced for business purposes and not for the personal benefit of the assessee. It was noted that the amount of ?1 crore was directly given by RHPL to Raj Events and Entertainment Pvt. Ltd. (REEPL) for share allotment, and the shares were subsequently transferred back to RHPL. The ITAT observed that the cheque was not issued in favor of the assessee, and she did not use the amount for personal benefit. Consequently, the ITAT remitted the matter back to the AO for fresh consideration, directing the AO to consider judicial precedents and the specific facts of the case. The High Court upheld the ITAT's decision, stating that the findings were in accordance with law. The Court emphasized that Section 2(22)(e) does not include loans made in the ordinary course of business where lending is a substantial part of the company's business. The Court found that the AO and CIT(A) had incorrectly added the loan amount under Section 2(22)(e), and the ITAT was justified in remanding the matter for re-examination. Issue 2: Justification of ITAT in Setting Aside the Additions on Account of Deemed Dividend under Section 153A The Revenue also contested the ITAT's decision to set aside additions made under Section 153A, which relates to assessments following a search operation. The AO had added deemed dividends for the assessment years 2003-04 to 2006-07 based on the search findings. The ITAT found that no incriminating material was discovered during the search to justify the additions. It noted that the assessment for the year 2004-05 was already completed, and the time for issuing a notice under Section 143(2) had expired. Therefore, no additions were warranted without new incriminating evidence. The High Court supported the ITAT's stance, explaining that Section 153A empowers the AO to reassess tax liability based on material obtained during a search. The Court held that the ITAT did not err in remanding the matter to the AO for verification of facts and information. The Court concluded that the ITAT's remand order did not involve any substantial question of law, as all issues would be open for determination by the AO after remand. Conclusion: The High Court dismissed the Revenue's appeal, affirming the ITAT's decisions to set aside the additions under Sections 2(22)(e) and 153A of the Income Tax Act. The Court found that the ITAT's remand orders were justified and in accordance with the law, emphasizing the need for the AO to re-examine the facts and apply relevant judicial precedents. The appeal was dismissed with no order as to costs.
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